Substitution elasticities and investment dynamics in two country business cycle models

Michael Pakko

No 2002-030, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Two country applications of equilibrium business cycle methodology have succeeded in matching some key features of international fluctuations. However, discrepancies between theory and data remain. This paper identifies an anomaly related to a basic property of typical models: The prediction of countercyclical net exports is fundamentally related to a counterfactual implication for negative cross-country investment correlations. The introduction of investment adjustment costs can induce positive investment comovement; however, this has the side-effect of reversing the cyclical behavior of net exports. The calibration of a low elasticity of substitution between domestic goods and imports is shown to be a more robust specification with regard to this and other puzzles that have arisen in the international business cycle literature. ; Earlier title: Substitution elasticities and investment dynamics in international business cycle models

Keywords: Business cycles; International trade; Balance of trade (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published in Topics in Macroeconomics, 2003, 3(1), pp. Article 14

Downloads: (external link)
http://research.stlouisfed.org/wp/more/2002-030/ (application/pdf)
http://research.stlouisfed.org/wp/2002/2002-030.pdf

Related works:
Journal Article: Substitution Elasticities and Investment Dynamics in Two-Country Business Cycle Models (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2002-030

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().